Mortgage Insurance Australia — What You Need to Know
Owning a home in Australia comes with several types of insurance to consider — some required by lenders, some strongly advisable, and some optional. Understanding the difference can help you make informed decisions about protecting your biggest asset and the loan secured against it.
Types of Insurance for Home Loan Borrowers
| Insurance type | Required by lender? | Who it protects | Article |
|---|---|---|---|
| Lenders Mortgage Insurance (LMI) | Yes — if LVR >80% | The lender (not you) | LMI Explained |
| Building insurance | Yes — as a condition of loan | The property structure | Building Insurance for Home Loans |
| Contents insurance | No | Your possessions | Not covered by this section |
| Mortgage protection insurance | No | Your mortgage repayments | Mortgage Protection Insurance |
| Life insurance | No — but strongly advisable | Your family | Life Insurance for Mortgage Holders |
| Income protection insurance | No | Your income if you can’t work | Income Protection and Your Mortgage |
| Landlord insurance | No — for investment properties | Rental income and property damage | Landlord Insurance Australia |
Required vs Optional Insurance
Lenders Mortgage Insurance (LMI) — Required at >80% LVR
LMI is a one-off premium paid by the borrower when the deposit is less than 20% (LVR above 80%). It protects the lender — not you — if you default and the property sale doesn’t cover the outstanding debt.
→ Full guide: LMI Explained
Building Insurance — Required by Lenders
All major Australian lenders require building insurance to be in place as a condition of the mortgage. This protects the security property (the building structure) against fire, storm damage, flooding and other events.
→ Full guide: Building Insurance for Home Loans
Optional but Important Insurance
Mortgage Protection Insurance
A product that pays your mortgage repayments for a period if you become unable to work due to illness, injury, or involuntary redundancy. It is sometimes confused with LMI or life insurance — but is distinct from both.
→ Full guide: Mortgage Protection Insurance Explained
Life Insurance
If you die, your mortgage still needs to be repaid. Without adequate life insurance, your family may need to sell the property to cover the debt. Life insurance is not required by lenders but is widely considered essential for borrowers with dependants.
→ Full guide: Life Insurance for Mortgage Holders
Income Protection Insurance
If you cannot work due to illness or injury, income protection insurance replaces a portion of your income (typically 75%). This is the broadest protection for your mortgage — because it replaces income, not just one expense.
→ Full guide: Income Protection Insurance and Your Mortgage
How Much Building Insurance Do I Need?
Building insurance should cover the rebuild cost of the property — not its market value. These can differ significantly, particularly in expensive locations where land value is high but construction costs are lower. Underinsurance is a significant risk for Australian homeowners.
→ Full guide: How Much Building Insurance Do I Need?
What Happens to Your Mortgage If You Die?
This is one of the most important estate planning questions for property owners. The answer depends on your loan structure, whether you have a co-borrower, and whether life insurance is in place.
→ Full guide: What Happens to Your Mortgage If You Die?
Related Mortgage Guides
- LMI Explained — Lenders Mortgage Insurance
- All Costs and Fees When Buying a Home
- First Home Buyer Guide Australia
- Mortgage Calculators
This section provides general information about insurance types relevant to Australian home loan borrowers. Insurance products vary significantly — read product disclosure statements (PDS) before purchasing. For advice tailored to your situation, speak with a licensed financial adviser. Find one through MoneySmart.